After obtaining an understanding of the entity and its environment, including its internal control, an auditor decided to perform tests of controls. This is likely because:

Question

Quizplus · Accepted Answer

Choice "A" is correct. After obtaining an understanding the entity and its environment, including its internal control, the auditor may make a risk assessment that assumes controls are operating effectively. In such cases, the auditor performs tests of controls to obtain evidence supporting this assessment. Choice "B" is incorrect. If evidence to support a reduction in control risk is not available, tests of controls would, by definition, not be possible. Choice "C" is incorrect. When auditors decide to perform tests of controls, they have made a preliminary assessment that controls are operating effectively. Accordingly, the performance of tests of controls is not indicative of an increase in the assessed level of control risk. Choice "D" is incorrect. When many internal control weaknesses are identified, the auditor would not be likely to perform tests of controls. The assessed level of control risk is increased, and more reliance would be placed on substantive tests as opposed to tests of controls.

After Obtaining an Understanding of the Entity and Its Environment